One of the central themes that we monitor regularly at Trends is the "skills gap." This is the difference between the skills possessed by the American work force, and the skills that companies are likely to need from them.
In the cautious post-boom economy of the past three to four years, many professionals have adopted diminished career expectations. Economic growth is rebounding, but unemployment rates have just started to move, and the talking heads on TV continue to deliver dire predictions of jobs moving overseas.
Yet the Trends editors are confident that the job market over the next two years will come to resemble the boom years of the 60s and 90s, when Americans experienced unimagined economic prosperity. Impending demographic forces and technological changes will squeeze the labor supply beginning in 2006. Professionals armed with this knowledge can already plan for the best job market in American history!
We discussed the "graying planet" in our very first issue of Trends. Over the first quarter of this century, the "working age" population is expected to decline steadily in Europe and Japan, according to U.N. estimates. This decline will accelerate in the second quarter of the 21st century. There will be imploding population growth in Europe and Japan. Fortunately, the U.S. will see the working-age population grow throughout the next 50 years, but at a very slow rate.
Were now at the cusp of the largest inter-generational passing of the workplace torch in U.S. history. Within seven years, 30 million workers will reach the age of 55. During this decade and the next, the many members of the largest generation in American history ? the baby boomers ? will retire. These workers currently comprise 60 percent of the prime-age workforce, that is, workers between the ages of 25 and 54.
The next generation, Gen-X, whose members should replace the boomers, is much smaller. As a result, the number of prime-age workers will begin to stagnate. From 2000 to 2020, the Aspen Institute calculates the total prime-age workforce will grow by only 3 percent, cumulatively. By contrast, the total prime-age workforce grew by over 54 percent from 1980 to 1999!
The American economy has always relied on a growing and increasingly educated labor force to remain healthy. Unfortunately, the growth rate in the number of skilled workers will decelerate over the next two decades. From 1980 to 1999, the total number of workers who had attended college grew by 54 percent. In 2000, nearly 60 percent of prime-age workers had more than a high school education. But over the next two decades, the total number of college educated workers in their prime years will increase by only 7 percent, cumulatively.
The static educational level of the workforce, coupled with the expected retirement of the baby boomers, means there will not be enough skilled workers to meet continuously rising demand over the next 20 years.
Even if we include the historical average annual increase of 1 million legal and illegal immigrants, the portion of the workforce that has an education beyond the high school level will plateau at roughly 60 percent.
Based on these figures, the National Association of Manufacturers projects a shortfall of 5.3 million skilled prime-age workers in 2010 ? and 14 million in 2020. Including unskilled workers, the association projects a total gap of 7 million prime-age workers by 2010 ? and 21 million a decade later. According to the Employment Policy Foundation, America will face a shortage of nearly 30 million employees by 2031.
These projections assume we will return to the economy’s historical long-term growth rate of 3 to 3.5 percent. They also assume that baby boomers will retire at roughly the same ages as their predecessors.
Although the trend towards early retirement has been an established pattern over the preceding 40 years and is a deeply entrenched expectation among older workers, recent stock market declines and smaller 401(k)s portend a delay in boomers’ retirements. And many Americans remain concerned about the future solvency of Social Security.
Recall from the May 2003 issue of Trends our prediction that the concept of retirement will change considerably over the coming decade. Research shows that more people than ever are either working, or planning to work, in retirement.
For example, the recent Allstate Financial Retirement Reality Check survey revealed that three out of four baby boomers think they will never completely retire. A January 2002 poll of 1,001 non-retired American investors conducted by the Gallup Organization for UBS produced similar results. The study, titled “Retirement Revisited ? 2002,” revealed that 83 percent planned to work in retirement.
Many will continue to work because they can’t look forward to a financially secure retirement. The UBS study showed that 24 percent of investors believed they would live less comfortably in retirement. Other studies have found that 15 percent of Americans have no retirement savings, and 60 percent have nest eggs of less than $100,000.
Yet, even though many boomers may defer retirement, Business 2.04 reports that respected economic observers still consider a future skilled labor shortage all but inevitable. These experts include former U.S. treasury secretary and current Harvard University president Lawrence Summers; former Deputy Secretary of Labor Edward Montgomery; and Sigurd Nilsen, director of education, workforce, and income security for the General Accounting Office.
The skilled worker gap will be particularly acute among two groups: managers and hightechnology workers.
The supply of managers will drop as current managers, who tend to be older and are therefore closer to retirement, exit the workforce. The supply of hightech workers will plunge, because there has been a steady decline over the past decade in undergraduate and advance-degreed graduates in the U.S. in mathematics, computer science, and engineering.
Ironically, this comes at a time when the job market requires more technically-savvy workers at all levels.
Ed Potter, president of the Employment Policy Foundation, noted that currently 35 percent of all jobs are managerial or professional positions. The remainder consists mainly of blue collar, hourly-paid jobs. The nature of jobs created over the next 10 years, however, will be just the opposite. “Essentially we’re going from a dirty-fingernail society, to a knowledgebased cognitive-ability one,” he predicts.
In an interview with the Associated Press,1 Helene Armitage, vice president of technology at IBM, warned that “while thousands of essential technology jobs remain vacant, our technology needs continue to grow. Young people have become rabid consumers of all things technological ? from Internet chat rooms, to cell phones, CDs and DVDs ? yet they are increasingly pulling away from the math and science skills that produce these wonders. Meanwhile, more tech workers are retiring, and precious few are preparing to take their place.”
The problem is that it takes time to incubate the next generation of scientists, programmers, and engineers. Unfortunately, too many young Americans are not encouraged to take science and mathematics classes in middle school. As a result, many don’t even consider pursuing these programs in college, and some of those who do don’t have the requisite foundational training.
As a result, each year American universities confer 40 to 50 percent of their PhDs in Computer Science to non-American students. Moreover, with the accelerating pace of technological advancement, technical training quickly becomes obsolete. Scientists, programmers and engineers ? much like those in the medical field ? must commit themselves to continued education to keep up with developments in their respective fields. Those professionals who choose not to, quickly find themselves behind the technology curve.
We believe the work week will become increasingly longer and intense, particularly for highlyskilled employees. We will discuss the longer work week in Trend #3. The key point here is that there will be unprecedented wealth-generating opportunities for highly-skilled workers over the coming two decades.
Some professionals may chose to curtail the time they work due to family demands or personal interests. Many boomers will opt for part-time work to begin enjoying some, but not all, of the fruits of retirement. Other highly-skilled working parents will demand flexible schedules and telecommuting arrangements.
However, we anticipate that companies will strongly advocate, and perhaps increasingly expect, longer workdays from employees to compensate for the shortages of employees with particular skills. Companies will also consider non-traditional working arrangements such as directly hiring temporary and contract employees (discussed in Trend #4), and outsourcing entire back-office functions (discussed in Trend #5). Unfortunately, these domestic sources will face the same tight labor market for highly-skilled workers.
Some companies are working with federal and regional agencies to retrain the unemployed, underemployed, and displaced workers. In the U.S., the federal Workforce Investment Act is used to subsidize tuition for dislocated worker retraining programs.
In Canada, more than a quarter of a million people are registered in apprenticeship programs combining entry-level positions in industry with time off for part-time education.
In the U.K., companies like British Petroleum are actively hiring and training apprentices. The British government even established a Learning and Skills Council, which is working with the British Chambers of Commerce to implement an ambitious “national skills strategy.” The objective is to have 28 percent of 16-to-21-year-olds joining one of the 150 different apprenticeship programs by the end of this year.
Training, in fact, will be one of the primary ways to improve employee retention. Retention of valued employees is essential, since the coming skills gap will result in higher wages for highlyskilled employees and attempts to raid competitors. Well-known businesses that invest in training have little problem attracting and retaining staff. Yet as we noted in the December 2003 issue of Trends, top performers are currently feeling less loyalty to most employers.
Sibson Consulting reports that one out of six employees is ready to bolt. Walker Information says its survey of 2,400 employees found that 34 percent were at high risk of departure. Other experts predict that annual voluntary turnover could rise to 20 percent or more for white-collar workers as companies compete for the best workers. And Accenture says half of all U.S. middle managers are either seeking new jobs or planning to do so in the near future. All of this means that companies must do everything they can now to keep their most valued, highly-skilled workers tomorrow.
But companies will increasingly be forced to consider overseas sources of skilled human capital. Already, large American firms such as Sun Microsystems, Siemens, Netscape/AOL, and Bank of America are importing 463,000 software programmers from abroad through the controversial H?1B Work Visa Program. H-1B was established in 1990 to permit 65,000 non-American programmers to enter the U.S each year for an extended ? but temporary ? period. Computerrelated employers successfully lobbied Congress to increase the yearly cap on H-1Bs to 115,000 in 1998 and 195,000 in 2000.2
Other countries are also liberalizing their visa policies to attract and retain these highly-skilled workers. The U.K. and Germany, for example, have waived immigration controls on people with computer skills. Canada invited entrepreneurs from Hong Kong to emigrate in return for investing in start-up businesses.
Yet, industry analysts warn that even a major liberalization of the H-1B Visa Program will not prevent shortages of highlyskilled workers in the U.S. As a result, companies are looking at off?shoring, the rapidly growing and highly controversial management practice of tapping overseas workers long-distance. We discuss off-shoring of highlyskilled jobs in detail in Trend #7.
Based upon the preceding discussion, we forecast the following developments:
First, many companies will pay the price for short-sighted planning for their human capital needs. Companies that slashed technically-skilled workers over the past two years will unsuccessfully attempt to rehire those same workers in the coming years. Many firms have alienated their employees during the most recent recession. This will hurt them in the coming years when there is once again a dramatic shortage of skilled workers. If your company hasn’t already rolled out a fully developed employee retention program emphasizing ongoing investment in worker training, we predict you are likely to be one of those companies seriously impacted by the impending skills gap.
Second, many highly-skilled professionals will become the equivalent of “free agents,” moving from one employer to the next from year to year, or even month to month. Because they will be in such high demand, people with the skills that are in short supply will be able to choose from competing bids for their services, perhaps by posting their resumes on free-agent Web sites that will auction their time.
Third, expect continued offshoring of many jobs requiring education and technical skills as overseas outsourcers increasingly target mediumsized as well as large-sized firms, especially in information technology services. We expect the debate over off-shoring will grow even more contentious as up to 5 percent of computer programming positions are offshored in the coming decade. Over the next two years, or at least until the impending skills gap is reflected in higher wages and worker shortages, we predict several states will enact legislation preventing outsourced public services from being off-shored.
Fourth, we foresee a strengthening of professional associations and organizations over the next 10 years. These groups will play a more important role in devising career training programs for recent college graduates, displaced workers, and mature workers reentering the workforce. In the computing professions, we anticipate that ongoing industry accreditation will become an even more important factor in future employment than holding a degree from a college or university.
References List : 1. ASSOCIATED PRESS, September 23, 2002, "Careers: The Coming Tech Gap." ⓒ Copyright 2002 by The Associated Press. All rights reserved.2. THE ECONOMIC TIMES, September 13, 2003, "Less H-1Bs Means More Outsourcing," by Sudir Shah. ⓒ Copyright 2003 by The Times of India Group. All rights reserved.
